20150720-穆迪服务-Credit_Outlook_53页_2mb

Credit Outlook Summary - 20 JULY 2015

Core Content

This document provides an analysis of credit implications stemming from recent corporate, bank, insurer, and sub-sovereign events. It outlines the credit impact of various transactions and developments, including acquisitions, divestitures, and market conditions, across different sectors and regions.

Main Points and Key Information

Corporates

• Celgene's Acquisition of Receptos

  • Credit Negative: The acquisition of Receptos for $7.2 billion, mostly funded by debt, increases Celgene's debt/EBITDA ratio to 3.5x-4.0x.
  • The acquisition diversifies Celgene's business away from Revlimid, which accounts for over 60% of its revenue.
  • Ozanimod, a lead product in Receptos, has potential in immune-inflammatory conditions and could boost Celgene's immunology franchise.
  • Celgene is expected to continue deleveraging to below 3.0x debt/EBITDA over the next two years but is unlikely to go below 2.5x.
  • The company will fund share repurchases with debt rather than repatriating offshore cash.

• WPX Energy's Acquisition of RKI

  • Credit Negative: The $2.75 billion acquisition increases WPX's leverage and debt-to-production ratio.
  • The deal improves WPX's oil production and margin profile but introduces credit risk due to increased debt and integration challenges.
  • WPX's debt/EBITDA ratio is expected to rise to 21,000/boe from 12,500/boe, and debt-to-proved reserves to $6.00/boe from $4.66/boe.
  • WPX is unlikely to make more major acquisitions beyond this one.

• HD Supply's Sale of Power Solutions Business

  • Credit Positive: The $825 million sale improves HD Supply's debt/EBITDA ratio to 5.5x from 5.7x.
  • The division had low margins, so the sale should improve overall operating margins and EBITDA.
  • HD Supply is expected to use proceeds for debt reduction, though a rating upgrade is not imminent due to ongoing interest payments.

• Magna's Acquisition of Getrag

  • Credit Positive: The €2.45 billion acquisition improves Magna's exposure to high-growth markets in Europe and China.
  • Financial leverage is expected to increase to 1.1x in 2015, but this is within prior expectations.
  • The acquisition follows the divestiture of its low-margin interiors business and is expected to boost EBITDA from the cement segment.

• Elementia's Use of IPO Proceeds

  • Credit Positive: The IPO allows Elementia to reduce leverage and fund capital expenditures.
  • The company plans to pay down MXN3 billion of local notes and expand its cement plant.
  • Debt/EBITDA is expected to drop to 2.7x after the payment, though not enough for a rating upgrade.
  • The cement segment is projected to contribute 30% of EBITDA by 2016.

• BMW's China Profit Warning

  • Credit Negative: The joint venture's 40% profit drop in China will impact BMW's overall performance.
  • China constitutes 21.9% of BMW's sales, with BBA contributing 63% of that.
  • Despite the China slowdown, growth in Europe and the US is expected to offset the impact.

• Abengoa's Reduction of Stake in Abengoa Yield

  • Credit Positive: The sale of a 2.5% stake reduces Abengoa's exposure to Abengoa Yield's debt and improves liquidity.
  • The transaction could lower net consolidated leverage by 2.0x-2.5x, bringing it back to the top end of the B2 rating guidance.
  • A rating upgrade may occur if the company demonstrates transparency and successful asset rotation.

• Yanzhou Coal Mining's Inner Mongolian Investment

  • Credit Negative: The RMB2.36 billion investment increases debt and adjusted debt/EBITDA to 9.4x.
  • The new coal processing factory will increase production capacity by 86%, but the EBIT margin is expected to remain weak at 5% due to low coal prices and market oversupply.

Banks

• US Banks' Energy Exposures
  • Increased energy exposures require higher loan-loss provisions, indicating credit risk.
• Bank of Nova Scotia's Acquisitions in Panama and Costa Rica
  • Credit Negative: The acquisitions increase the bank's exposure and risk profile.
• Russian Central Bank's Basel III Designation
  • Credit Positive: Designating 10 banks as systematically important under Basel III may improve their regulatory standing and credit profile.
• Russia's Basel Pillar II Implementation
  • Expected to improve bank supervision and credit risk management.
• International Bank of Azerbaijan
  • Credit Positive: Transfer of problem assets to a state-owned vehicle may improve its credit profile.

Insurers

• QBE Insurance Group's Sale of Mortgage and Lender Services Business
  • Credit Positive: The sale improves QBE's financial position and reduces leverage.

Sub-sovereigns

• EU Fines Spain
  • Encourages financial disclosure across Europe, potentially improving transparency and credit practices.

US Public Finance

• California's Statutory Lien for General Obligation Bonds
  • Credit Positive: Enhances the credit quality of local government bonds.
• CalPERS Investment Target Shortfall
  • Credit Negative: Indicates potential underperformance in managing public pension funds.
• Atlantic City Debt Service Payment
  • Credit Positive: The city will pay its August debt service, though a rescue package is still pending.

Credit in Depth

• Iran Nuclear Deal
  • Credit Negative: Increased oil exports from Iran could negatively impact oil-dependent sovereigns like Oman, Bahrain, Venezuela, Russia, and Nigeria due to higher supply and lower prices.

Rating Changes

• Moody's downgraded Audatex Holding and upgraded the New York Metropolitan Transportation Authority.
• Upgraded 554 auto loan ABS (including 5 Ally and 14 CarMax), 254 Spanish RMBS, and 26 Portuguese RMBS.
• Other rating actions included changes for various banks, insurers, and sovereigns.

Research Highlights

• Moody's published reports on a wide range of topics including global semiconductor, Asia steel, Peru building materials, North America chemicals, and more.
• Covered key sectors such as automotive, energy, construction, and financial services across multiple countries and regions.
• Focus on leverage, EBITDA, debt-to-EBITDA ratios, and the impact of acquisitions and divestitures on credit profiles.